Active Bear: First ETF to Short U.S. Equities

Most investors dabbling in the actively managed exchange traded fund (ETF) space will peruse long-only strategies, but AdvisorShare is the first fund provider to launch a short-only active ETF.

The relatively new AdvisorShare Active Bear ETF (NYSEArca: HDGE) is an actively managed fund that shorts domestic U.S. equities in an attempt to provide investors with capital appreciation, writes Shishir Nigam for SeekingAlpha. Sub-advisor, Ranger Alternative Management, utilizes a bottom-up, fundamental, research driven security selection process to pick out companies that have low earnings quality or use aggressive accounting to cover operational deterioration and enhance earnings.

The fund’s top short positions include Netgear Inc (NasdaqGS: NTGR), Whirlpool Corp. (NYSE: WHR), Salesforce.com (NYSE: CRM), General Motors (NYSE: GM) and VMWare Inc. (NYSE: VMW) – the average company weighting in the portfolio lies between 2% to 7%. The largest sectors include consumer goods and consumer services. HDGE has an expense ratio of 1.85% and a market capitalization of $46.0 million.

HDGE is the first short-only actively managed ETF to launch in the U.S, which provides exposure to the downside when markets are under duress. As a result, the fund’s mandate is to identify poorly performing companies, but the ETF will likely underperform during positively trending markets.

In the last 2 months the fund has been trading, HDGE has managed to provide a relatively comparable inverse relationship to the performance of the S&P 500. It should be noted that the ETF has targeted high beta, high momentum companies, which could result in higher portfolio volatility.

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